Aixtron will have to cut costs, jobs if U.S. blocks China deal

The logo of Aixtron SE is pictured on the roof of the German chip equipment maker's headquarters in Herzogenrath near the western German city of Aachen, October 25, 2016. REUTERS/Wolfgang Rattay

FRANKFURT (Reuters) - Aixtron (AIXGn.DE) will have to take action to balance income and costs, including potential job cuts, if U.S. President Barack Obama blocks its takeover by China’s Fujian Grand Chip Investment Fund (FGC).

Shares in the German semiconductor equipment maker fell more than 5 percent on Friday following a report by Bloomberg, citing sources, that said Obama was poised to block the deal.

An Aixtron spokesman said it had not received a ruling, but that the deal would be called off if Obama formally blocked it.

Last month, the Committee on Foreign Investment in the United States (CFIUS) recommended that Aixtron’s sale to the Chinese investment fund be stopped due to security concerns.

“After the decision in the U.S. management will have to put their heads together. Costs and income need to be balanced again,” the spokesman said.

Loss-making Aixtron has said it would have to cut jobs and scale down if the transaction fails. Aixtron had 713 employees at the end of the third quarter, 5 percent less than a year ago.

Analysts consider Aixtron has a bleak future as a stand-alone company as it struggles with market overcapacity.

Tim Wunderlich, analyst at German brokerage Hauck & Aufhaeuser, said last month when it became clear the deal might be blocked that Aixtron needed a white knight from Europe or the United States to have a viable future.

The fall in Aixtron’s shares took them below Grand Chip Investment’s offer price of 6.00 euros per share. The stock is hovering around a nine-month low and was the biggest faller in the STOXX Europe 600 Technology .SX8P, which was down 1.7 percent.

Other semiconductor companies in Europe were hit. ASML (ASML.AS), the second most valuable European tech stock, fell 2.4 percent. The Dutch company had also come up against national security hurdles with SIFIUS 15 years ago, but eventually succeeded in buying U.S. based rival Silicon Valley Group.

Midcap European chipmakers, seen as possible M&A targets, were also down, including Anglo-German Dialog Semiconductor (DLGS.DE), down 4.4 percent, Austria’s AMS (AMS.S), down 3.3 percent and BE Semiconductor, down 2.6 percent.

But analysts and traders said a report that Apple Inc (AAPL.O) was cutting orders for iPhone 7 components could also have put pressure on Dialog and AMS shares.

Bigger chipmakers such as Germany’s Infineon (IFXGn.DE) and French-Italian STMicroelectronics (STM.PA) were only slightly lower, shrugging off fears of an M&A slowdown following two years of consolidation of the global semiconductor industry.

GALLIUM NITRIDE AND NANOTUBE

U.S. concerns over China gaining access to the production of gallium nitride - a powdery yellow compound used in light-emitting diodes (LED), radar, antennas and lasers which is made using Aixtron-manufactured technology - was the main reason for the U.S. block, security sources said.

Chinese Foreign Ministry spokesman Geng Shuang told reporters at a regular briefing on Friday that the deal was “normal commercial activity” and that China hoped the world would not interfere politically.

CFIUS never gives reasons for its decisions. But sources have previously told Reuters it blocked the $3.3 billion sale of Philips’ (PHG.AS) lighting business, Lumileds, to a consortium of Chinese investors last January over gallium nitride concerns.

Another source told Reuters that Aixtron’s nanotube technology acquired through its 2007 acquisition of a Cambridge-based company Nanoinstruments was a concern too. Their products also have military applications.

The German Economy Ministry, which withdrew its approval for the deal in October and is now doing its own review of the transaction, said the German process was independent of the U.S. scrutiny.

additional reporting by Anneli Palmen in Duesseldorf, Eric Auchard in Frankfurt, Greg Roumeliotis in New York and Michael Martina in Beijing